After having its first three IPR petitions denied, yesterday the Patent Trial and Appeal Board (PTAB) instituted the first IPR petition filed by hedge fund manager Kyle Bass and the Coalition for Affordable Drugs II LLC. On April 1, 2015, Bass filed a petition requesting inter partes review of claims 1-4 of Shire’s U.S. Patent No. 6,773,720 covering Lialda®. Bass challenged claims 1-4 of the ’720 patent as unpatentable under 35 U.S.C. § 103(a), advancing three grounds of unpatentability. Based on the information in the briefing, the Board was persuaded there was a reasonable likelihood Bass would prevail with respect to the claims challenged in the petition.

The ’720 patent is directed to controlled release oral pharmaceutical compositions containing 5-amino salicylic acid, also known as mesalamine. Mesalamine, the active agent in Lialda®, is used to treat Crohn’s disease and ulcerative colitis.

The Board first analyzed whether the Petition correctly identified the real parties-in-interest. The Patent Owner argued “that to comply with statutory requirements under 35 U.S.C. § 312(a)(2), the Petition also should have identified (1) all sister ‘Coalition for Affordable Drugs’ or ‘CFAD’ entities, and (2) all individuals or entities who have invested in the listed real parties-in-interest.” (IPR2015-00988, Paper 8 at 5.) Patent Owner contended that “[e]ach entity was formed by the same person (Christopher E. Kirkpatrick), each entity has the same registered office address (c/o Capitol Service, Inc. in Dover, DE), and each entity that has filed an IPR is a wholly-owned subsidiary of the same entity (Hayman Credes Master Fund, L.P).” (Id. at 6.)

The PTAB seemingly agreed, stating “evidence before us indicates that corporate ‘blurring’ exists between the different CFAD sister entities” which “weighs in favor of finding the sister entities to be real parties-in-interest.” (Id. at 6.) However, the PTAB ultimately decided that the Patent Owner had presented insufficient evidence “explaining or establishing sufficiently the relationship of the sister entities (or corporate officers, employees, or counsel acting on their behalf) to this proceeding in particular.” (Id. at 8.) “In addition, the record before us does not indicate sufficiently that any sister entity, acting in its own capacity, has or could have exerted control over this case, rather than other case(s) where the sister entity is a petitioner. . . Likewise, insufficient evidence exists to indicate that a sister entity funded or otherwise paid for expenses associated with the Petition.” (Id.)

The PTAB also analyzed Patent Owner’s contention that the Petition “fails to identify individuals or entities who have invested in the RPIs listed in the Petition.” (Id. at 9.) Again, the PTAB found insufficient evidence to persuade them “that any individual or entity who has invested in the listed RPIs has or could have exerted control over the filing of the Petition in this case.” (Id. at 9.)

In construing claims 1-4, the Board adopted Bass’ proposed constructions, which were not challenged by the Patent Owner. After analyzing the cited prior art and 103 challenges, the Board concluded that Bass “demonstrated that there is a reasonable likelihood that Petitioner would prevail in showing that claims 1–4 of the ’720 patent are unpatentable” and instituted the IPR. (Id. at 20.)

This decision comes in the wake of the PTAB’s denial of three other Bass petitions. In IPR2015-00720 and -00817, Bass’ first two petitions against Acorda were denied for failing to make a threshold showing that the posters cited as prior art “were sufficiently publicly accessible to qualify as a ‘printed publication’ under § 102(b).” (IPR2015-00720, Paper 15 at 5.) Bass’ IPR2015-01136 targeting Biogen’s dimethyl fumarate drug Tecfidera® was denied due to insufficient evidence that one skilled in the art would conclude from early clinical trial reports there was a reasonable likelihood of success that dimethyl fumarate would be useful for treating multiple sclerosis. Bass has requested rehearing in all three of these cases.

What is clear from the PTAB’s most recent ruling is that Bass has been able to meet the initial threshold requirements for institution, and the shortcomings identified in the Acorda and Biogen petitions did not block institution in the Shire petition. Furthermore, this institution, coupled with the PTAB’s prior decision to deny Celgene’s sanctions motions against Bass which sought to dismiss his petitions for abuse of process, affirms the ability of hedge funds to challenge patents in IPR proceedings. Given that Bass has previously stated that he will not settle, we can expect a decision on the validity of the patent within a year.